POLICY MEMO
A Smart Way to Finance High-Speed Rail:
Restructuring the Highway Trust Fund into a results-driven
transportation fund
BY MARK REUTTER
Since announcing an $8 billion “down payment”
for high-speed rail development, the Obama
administration has been silent about how to
pay for a program as ambitious as the Interstate
Highway System.
The interstates cost more than $250 billion in
current dollars to build. A fast train network,
based on systems being developed worldwide, most
noticeably in China, could be equally expensive.
So far, Congress has come up with $2.5 billion
in general fund appropriations for high-speed
rail (HSR) in 2010, and the administration has
asked for $1 billion a year for the 2011-14 budgets.
Such allocations are hardly enough to begin
detailed engineering for California’s HSR proposal
between Los Angeles and San Francisco, let alone
the nine other intercity corridors that the White
House has envisioned.1
About the author
SEPTEMBER 2010
On Labor Day, President Obama proposed a $50
billion transportation infrastructure program that
would include 4,000 miles of rehabbed and new
railway track. The proposal calls for integrating
HSR projects into the next surface transportation
bill, a promising step that would ensure some
level of federal commitment to the program over
the five- or six-year life of the bill. But again, the
president did not specify how he would finance
HSR or the larger infrastructure program other
than to say that his administration “is committed
to working with Congress to fully pay for the
plan.” 2
The president’s reticence raises a legitimate
question: Can the nation afford HSR in a time of
looming federal deficits?
The answer is yes – financing HSR is entirely
feasible, but will only happen if the administration
Mark Reutter is a PPI fellow and former reporter for The Baltimore Sun who has published in The Wilson Quarterly, Barron’s, The Nation and
other magazines. He edited Railroad History for eight years and is the author of Making Steel: Sparrows Point and the
Rise and Ruin of American Industrial Might.
POLICY MEMO
Progressive Policy Institute
and its congressional allies take bold steps
to rebalance our transportation priorities.
Fortunately, there is both a funding source and
a road map for moving from today’s scattershot
federal transportation spending to a results-driven
enterprise.
construction is an equitable way to wean drivers
away from auto travel by providing them with a
faster, safer, and more environmentally sound
alternative.
Congress could easily allot $5 billion a year for
HSR construction – without an increase in the
gas tax – by cutting out earmarks and formulabased grants that now soak up billions of dollars,
according to the General Accountability Office
The funding source is the Highway Trust Fund,
with approximate funds of $52 billion a year. 3
Allocating a portion of highway funds for rail
TWO WAYS TO REDUCE HIGH-SPEED RAIL COSTS
1
Turn Interstate corridors into 21st-century transportationand-energy corridors.
+
• Identify public lands along Interstate highways, such as median strips, for
potential high-speed train rights of way.
• Piggyback the much-talked-about “smart grid” for distributing electricity from
new energy sources (wind, solar, nuclear, etc.) on these corridors. In addition to
transporting energy, the electricity grid would supply power to the trains.
• Use the expertise and institutional knowledge of state highway departments
to develop these intermodal corridors. Highway planners would morph into
transportation and energy planners.
2
Establish an updated version of land grants to incentivize
private parties to build or operate new train lines.
+
• Capture the value added by HSR corridors at terminal and station points by using
government powers to assemble land that would be distributed to private parties
involved in HSR construction. Such land-grant districts could be divided into private
and publicly owned parcels to ward off speculation and hoarding.
• This idea is a modification of the land-grant system that greatly stimulated private
railroad building in the unsettled West between 1850 and 1870. The federal
government gave railroads empty public land, typically 10 miles on either side of the
tracks, mixed with land retained by the government.
• Across the U.S., especially in or near cities, large parcels of underutilized or
abandoned industrial land could be tapped as potential HSR stops. In the West, large
tracts of federal land exist between major urban hubs.
2
POLICY MEMO
Progressive Policy Institute
(GAO).4 Such fund reallocations could not only
jumpstart HSR projects but serve as seed money
for public-private partnerships to get the work
done.
collected directly from oil companies with virtually
no administrative overhead. By pooling money in
a national fund, well-engineered and standardized
roads could be built across the country, even in
sparsely populated states, such as South Dakota,
whose local travel would not by itself justify topquality roads.
Already, international rail operators have
expressed interest in competing for high-speed
train contracts in the U.S. But these groups are
waiting for the Obama administration to lay out a
comprehensive financing plan before structuring
bids. The use of a well-established and reliable
source of transportation financing could make
these deals happen.
Mission Creep
As the Interstate system neared completion, the
Trust Fund began to lose its focus. Originally,
the plan was that the highway system would be
completed by 1972 and the Trust Fund would
be terminated. Instead, Congress extended the
program and continued to raise the federal gas
tax to pay for more and more programs (the last
increase was in 1993, to 18.4 cents per gallon).
Lessons from the Past
The Highway Trust Fund was established in
1956 with a powerful mission – to bankroll the
Interstate Highway System, the largest public
works program ever undertaken by a nation.
Under a $286-billion authorization bill known
as SAFETEA-LU, passed in 2005 and extended
through the end of this year, the Trust Fund
allocates money far and wide. The Safe Routes
to School Program, for example, provided $183
million last year for sidewalk improvements to
encourage children to walk and bicycle to school.
More than $1.6 billion was spent on maintaining
roads in national parks, bicycle safety, preservation
of historic covered bridges and funding
metropolitan planning organizations.6
The fund amounted to an elegant solution to
the problem of how to raise enormous sums of
money without increasing the national debt. “It
took two years, several government studies and
both sessions of the 84th Congress to figure
out how to fund the program,” according to one
historian. 5 The Eisenhower administration, Senate
Republicans, and congressional Democrats all
worked together.
The federal tax on gasoline was increased in two
steps from two to four cents a gallon. In order to
ease opposition to the gas tax hike, all proceeds
were funneled into new highway construction,
rather than spread among general expenditures.
The administration
needs to seize the
initiative and make the
case for HSR funding
during the fall election
cycle and in the next
transportation
reauthorization bill.
Perhaps the most significant innovation was
implementing a “pay as you go” system. In effect,
the Trust Fund is the opposite of deficit spending –
it expends money only after it has been collected
in gas-tax revenues. As a result, the Interstate
network was built without construction bonds
of earlier state toll highways. This alone saved
American taxpayers tens of billions of dollars in
interest payments.
The bewildering array of programs includes many
formula-based allocations that distribute federal
money to states regardless of whether the state
really needs the money or whether the program
serves any national or strategic purpose. The GAO
estimates that states have used roughly 60 percent
The Highway Trust Fund has proven to be an
extremely efficient way to raise money for longterm infrastructure improvements. Money is
3
POLICY MEMO
Progressive Policy Institute
to function as it has since the completion
of the Interstate system, pursuing no
discernible national interests other than the
political imperatives of donor state rights
and congressional earmarking? Or will it
advance concerted actions to confront the
transportation challenges facing the nation
that have reached crisis proportions?10
Policy Recommendations
Federal funds need to be focused where they
can produce the greatest benefits. High-speed
rail should become a top priority of the surface
transportation bill that replaces SAFETEALU, due to expire on December 31, 2010.11 We
recommend the following reforms:
• Change the name of the Highway Trust Fund
to the Surface Transportation Trust Fund
to better reflect its new mission for the 21st
century.
of the increases in Trust Fund grants since 1992 to
substitute for state and local highway funding.7
As federal spending from the Trust Fund
metastasized, politics became a major arbiter
of transportation spending. The most recent
act included $24 billion in congressional
earmarks that directed funds to be spent
on specific projects without any outside
review. The Transportation Research Board
found that earmarking had increased from
11 projects in the 1982 reauthorization act to
more than 5,000 projects in SAFETEA-LU.8
• Allocate at least $5 billion in Trust Fund
money in 2011 to HSR construction, with
special emphasis on getting a demonstration
high-speed line between Tampa and Orlando
completed by 2015. (The Florida line received
$1.25 billion in federal stimulus grants, but is
still short of its $2.6 billion budget.)
• Increase HSR expenditures in years 2012-15 (if
a five-year spending bill is enacted) to reflect
the increased demand for grants as more states
develop passenger rail plans.
Two years ago, the Trust Fund ran out of money
and required an infusion of $8 billion in general
funds. This embarrassing glitch was not the result
of the fund “going bankrupt,” as some charged.
Rather, the rate of expenditures by Congress had
overshot gas-tax revenues depressed by Americans
driving less due to the recession.9
• End the bureaucratic separation of highway
and rail programs by establishing a team
of planners to develop a HSR network in
coordination with future highway building and
restoration.
A commission set up by Congress to evaluate
federal spending issued a blistering appraisal of
investment decisions made through earmarks
and formula-based grants. The National Surface
Transportation Policy and Revenue Study
Commission summed up the lack of goals and
performance standards this way:
• Direct the U.S. Department of Transportation
and state authorities to examine routes where
HSR could use Interstate and other publicly
owned highway corridors for rights of way.
This approach, already being used in the
Tampa-Orlando corridor, would greatly lower
land acquisition costs for new rail lines.
The nation’s surface transportation program
has reached a crossroads. Will it continue
4
POLICY MEMO
Progressive Policy Institute
• Base federal transportation decisions on clear
analytic measures of performance rather than
earmarks – and competition between states
instead of preset formulas – to produce the
greatest return on taxpayer dollars.
•
Warren Buffett last year purchased the Burlington
Northern Santa Fe Railway for $34 billion in the
biggest transaction of his storied career. “It’s an
all-in wager on the economic future of the United
States,” Buffett said.12 Bill Gates owns roughly
35 million shares in Canadian National Railway,
another freight carrier.13
Congress should ensure that HSR, which uses
about 20 percent less energy per passenger
mile than automobiles, gets its fair share of any
future revenues generated by
carbon pricing.
With the Trust Fund providing a reliable stream of
upfront capital, private companies could undertake
the risk of building and operating HSR lines under
long-term leases. Already, rail operators in France,
Japan, and China have expressed interest in
competing for high-speed train contracts.14
Financing HSR is entirely
feasible, but will only
happen if the
administration and its
Congressional allies take
bold steps to rebalance our
transportation priorities.
Earlier this month, California Governor Arnold
Schwarzenegger took the first step in this direction.
With his own state budget deep in the red, he has
been seeking capital from Asia to get California’s
proposed high-speed railroad up and running.
On a trade mission, he won promises from both
Japan and China to loan California funds for the
$40 billion railroad.15 That’s the kind of thinking
that built the first transcontinental railroad to
California, defying skeptics who said the project
was impossibly expensive. Land grants to private
investors and cash incentives for track construction
did the trick. Today, the line’s owner, the Union
Pacific, is the largest railroad in North America.
Leveraging Private Capital
Private enterprise should play an important
place in the development and financing of the
nation’s HSR network. Already some of the
world’s smartest investors are investing in freight
railroads, betting on their inherent efficiency in an
energy-scarce future.
5
POLICY MEMO
Progressive Policy Institute
U.S. DOT reports that public-private partnerships,
used on a limited basis in highway projects, can
save up to 40 percent of the cost of construction
and significantly limit the potential for cost
overruns. Such partnerships can additionally cut
“many years off project delivery” through faster
phasing and equipment purchases.16
barrier is a lack of political will, especially in the
face of well-organized lobbying by interests that
have grown fat on federal road spending.
The type of thinking that continues to rest on old
assumptions about highways and trains, which
assigns a pile of cash to one and bare-bones
appropriations to the other, has hobbled Amtrak,
the nation’s slow-moving passenger rail carrier, for
decades.
With the Trust Fund
providing a reliable stream
of upfront capital, private
companies could undertake
the risk of building and
operating HSR lines under
long-term leases.
The same mindset can put a brake on the spread
of high-speed rail despite growing evidence, most
recently demonstrated by the Deepwater Horizon
oil spill, of our dangerous overdependence on cars
and gasoline.
The Obama administration has repeatedly talked
about its commitment to “green” technology and
how fast trains could provide job growth and
business opportunities to regions hard-hit by the
loss of manufacturing. The administration needs
to seize the initiative and make the case for HSR
funding during the fall election cycle and in the
next transportation reauthorization bill.
The Challenge to Policymakers
There are many possibilities for achieving a stateof-the-art rail system through the creative use
of the Trust Fund mechanism. Perhaps the chief
China has completed 4,000 miles of high-speed rail lines and plans on spending 2 trillion yuan ($297 billion) to double its system by
2014. (Photo by Remko Tanis)
6
POLICY MEMO
Progressive Policy Institute
1.http://www.progressivefix.com/high-speed-rail-may-stall-without-more-push-from-the-white-house.
2. See White House announcement at http://www.whitehouse.gov/the-press-office/2010/09/06/president-obama-announce-planrenew-and-expand-america-s-roads-railways-.
3.The Trust Fund currently allots about $42 billion a year to state and local governments for projects grouped under the title of
federal-aid highways. An additional $10 billion goes to mass transit projects (subways, buses and commuter rail) that reduce congestion on highways. The federal government pays 80-90 percent of the cost of Interstate highway construction and rebuilding.
4.Government Accountability Office, Surface Transportation: Restructured Federal Approach Needed for More Focused, PerformanceBased, and Sustainable Programs, GAO-08-400 (Washington, D.C., March 2008).
5.Gary T. Schwartz, “Urban Freeways and the Interstate System,” Southern California Law Review, Vol. 49 (March 1976), p. 428.
6.U.S. DOT, “SAFETEA-LU Fact Sheets on Highway Provisions” at https://www.fhwa.dot.gov/safetealu/factsheets.htm.
7.GAO, Surface Transportation, p. 35.
8.Transportation Research Board, The Fuel Tax and Alternatives for Transportation Funding (Washington, D.C., 2006).
9.http://www.speaker.gov/legislation?id=0251.
10.National Surface Transportation Policy and Revenue Study Commission, Transportation for Tomorrow, Vol. 1 (Washington, D.C.,
January 2008), p. 3.
11.Because of Congressional inaction on this enormous piece of legislation, SAFETEA is likely to be extended into 2011.
12.http://www.msnbc.msn.com/id/33599744/.
13.http://www.gurufocus.com/news.php?id=50556.
14.For example, SNCF, operator of France’s famous TGV network, has expressed interest in “working with the U.S. federal and state
governments, and other interested and qualified stakeholders, to make the vision for high-speed rail in America a reality” in a
four-volume proposal submitted to U.S. DOT.
15. http://www.progressivefix.com/schwarzenegger-takes-the-asian-express
16.U.S. DOT, Report to Congress on Public-Private Partnerships (December 2004), p. 2.
7
About the Progressive Policy Institute
The Progressive Policy Institute (PPI) is an independent research institution that
seeks to define and promote a new progressive politics in the 21st century.
Through policy analysis and dialogue, PPI challenges the status quo and advocates for radical policy solutions.
© 2010 Progressive Policy Institute
All rights reserved.
Progressive Policy Institute
1730 Rhode Island Ave. NW
Suite 308
Washington, DC 20036
Tel 202.525.3926
Fax 202.525.3941
Email [email protected]
www.progressivefix.com